Media Companies v. 2015: Smartphone-Powered, Digital First

[My post here originally appeared as a guest article in Digiday a few days back; I have updated it to reflect the new $24 million investment in gamer-focused MCN Machinima led by Warner Bros.]

That smartphone in your pocket.  Small form factor.  Massive impact.  That tiny screen is fundamentally transforming (disrupting?) each of our lives, including how we engage with content (movies and television).  That means fundamental transformation of the media and entertainment business right here, right now – with tens of billions of dollars at stake – yet very few media execs “get” this.  This changes in 2015.

A whole new class of mobile-driven digital-first media companies sprouted and blossomed in 2014 – so-called multi-channel networks (MCNs).  MCNs most typically are venture-backed start-ups that aggregate individual YouTube personalities and channels -- frequently for specific niche passionate audiences (think fashion and leading MCN StyleHaul) -- in order to achieve scale, fund video production, and maximize ad dollars.  Sounds benign enough, right, especially when their impact is marginalized by the almost-dismissive and somewhat-faddish acronym “MCN.” 

But, make no mistake, MCNs are media companies with transformative impact.  They simply are a new kind of media company.  Digital-first media companies.  These are media companies by millennials, for millennials.  And, while they do not supplant “traditional” media companies, they most definitely are a necessary extension of them in this new multi-platform media world.  After all, mobile is where the youthful eyeballs that “matter” (at least to marketers) now consume the majority of their video content.

That’s why Disney – the largest traditional media company of them all – slapped down up to nearly $1 billion last year to buy one of the largest MCNs -- Maker Studios.  As vast as its resources are (and the Mouse House certainly has plenty of cheese), Disney had the commendable self-awareness to recognize that it lacked the DNA to play effectively in the smartphone-driven, short-form video, millennial world – a world that demands a very different way of thinking about content development and engagement.  Rather than build it themselves, they bought that expertise and critical mass of short-form content (and the personalities behind them).  They paid up to double down on the MCN world, which was excellent news not only for Maker’s investors, but also for other leading MCNs and the investors behind them. 

Other major studios – and perhaps even technology companies like Apple, Samsung, and Amazon, whose divergent business models increasingly are content-driven – will follow suit in 2015.  This is a classic case where demand for MCNs with scale outstrips supply.  After all, content is increasingly king, and that means big numbers.  Last year, in addition to the near-$1 billion Disney/Maker deal, Otter Media (the joint venture between AT&T and The Chernin Group) paid a rumored $200-$300 million to buy competing MCN Fullscreen, and European-based media company RTL Group recently sewed up fashion-focused MCN StyleHaul for a price that values the company up to $200 million with earn-outs.

These are numbers that make even Northern California VCs – ever-cynical about all things content-driven (especially when they are driven in LA where most leading MCNS are based) – take notice.  They have smartly started to pour tens of millions of dollars into video-driven new media companies.  Case in point, BuzzFeed.  Blue-chipper Andreessen Horowitz invested $50 million to accelerate smartphone-targeted digital-first video production.  And, the accelerating pace of foreign-driven M&A (like RTL with StyleHaul) and investment (like BSKYB and Liberty Global’s recently announced $28 million investment with others in sports-focused MCN Whistle Sports) underscores that this sea change in the media business is not just a U.S. phenomenon.  Digital-first content is borderless and globally shareable.  We live in a new world order of digital media.

Brands too are finally taking notice and fundamentally changing their behavior.  They understand that smartphones – and the millennials who hold them – demand a different and deeper form of engagement.  Pre-roll and pop-up ads simply don’t work anymore.  Millennials demand “authenticity,” a word that is a fundamental part of the new digital-first lexicon.  You hear that word – and the resulting marketing solution of “branded” or “integrated” content -- everywhere.  While that notion certainly is not completely new to marketers as we enter 2015, what is new is that for the first time, they will shift significant marketing dollars away from traditional media to more engaging and measurable digital platforms. 

Yes, there will be blood as digital begins to cannibalize traditional ad spends.  That’s why we have seen an accelerating pace of ad-tech company exits like increasingly video-focused Facebook’s reported $400-$500 million buy of LiveRail and Yahoo!’s recent $640 million acquisition of BrightRoll. 

But it doesn’t end there.  Several brands will go even further and invest big to become millennial-driven, digital-first MCN-like media companies themselves.  Red Bull is the poster child here, aggressively developing and aggregating its own video content for digital consumption whenever, wherever.  GoPro, Marriott, and Pepsi also have proudly announced such ambitions.  Make no mistake.  We are not just talking advertising and marketing here.  We are talking whole new media businesses for brands, bringing them head-on against both studios and other MCNs.  Red Bull, in fact, operates its “Media House” studio as a separate P&L and is measured by its stand-alone success.

Those who listened closely in 2014 heard (and internalized) these smartphone-driven digital-first media transformational winds of change.  So, listen closely now.  Do you hear it?  Yes, that is the “whoosh” of massive mounds of money changing hands all around the video ecosystem.  Just last week, Warner Bros. led an additional $24 million round in gamer-focused Machinima -- and a few weeks before that, BSKYB and Liberty Global formally announced their $28 million Series B round with others in Whistle Sports – a double-barreled MCN big bang to start the year.

In the immortal words of Karen Carpenter (how ‘bout that for a deep reference?), “We’ve only just begun …”.

Pay TV Packages, Re-Imagined -- “The Great Unbundling” of Fall 2014

2014 is a transformative year for the media and entertainment business.  We will look back several years from now and fully realize this.

And, it’s not just about MCNs and the continuing litany of massive M&A and strategic investment.  Its about fundamental changes in the underlying forces (including the ascension of millennial mobile video consumption and engagement) that drive consumer behavior. 

Case in point Pay TV bundles.  These remarkable past 6-8 weeks mark THE moment in time at which previously sacred traditional cable/satellite pay TV programming bundles -- and the decades old business models behind them -- came under serious fire by concrete strategic actions by central players amidst this accelerating mobile and OTT video reality (and the consumers -- especially millennials -- behind it).  Yes, there has long been talk of such moves.  But, now major players in the overall ecosystem are taking real transformative action.  (For a great discussion about potential “winners” and “losers” in this great unbundling of pay TV packages, read Todd Spangler’s piece in Variety linked here.)

In October, HBOand CBSeach announced in rapid succession that they would offer their own stand-alone over-the-top (OTT) services.  No cable or satellite subscription required.  Competing Starz network later confirmed its own major international-focused strategic initiative to that same end.  And, AT&T – which just recently was integral in the acquisition of leading MCN Fullscreen via its $500 million Otter Media joint venture with The Chernin Group – also just recently entered the unbundling fray.  A few weeks back, AT&T announced a new $39/month U-Verse programming bundle that includes HBO and Amazon Prime video, together with basic cable programming PLUS broadband.  Via this new stripped down efficient package, AT&T smartly targets cord cutters -- and, importantly, the increasing number of “cord nevers” (those, especially young adults, who never subscribed to programming packages in the first place). 

Other cases in point.  Viacom recently licensed 22 of its live and VOD premium networks to Sony for its new OTT service for PlayStation, Sony TVs and other Sony connected devices.  Verizon joined these others and announced an early 2015 launch for its long-anticipated “virtual” MSO that is so virtual, it is wireless -- specifically designed for mobile.  And, critically, core to its new service, Verizon announced a down-sized “bite-sized” cable-lite programming package that features mobile-friendly MCN AwesomenessTV short form video, in addition to big 4 broadcaster content and NFL games (via its existing exclusive smartphone deal).  When announcing its new service, Verizon Chairman and CEO Lowell McAdam expressly pronounced what was almost unthinkable not long ago – i.e., that “among cable programmers, there’s been an attitude shift among cable programmers toward accepting a new over-the-top model for delivering pay TV.”

Welcome to “The Great Unbundling” of 2014. Transformative times in the media and entertainment business – particularly in the past few weeks.  

Bundle together these disruptive deals of just the past month or so and you have yourselves a digital media revolution ....

Cut This! (The Cable Bundle, NOT The Cord ...)

Welcome to the great unbundling.

2014 is a transformative year for the media business.  We will look back several years from now and fully realize this.  So, internalize that now.

First, anyone who reads my blog knows that we are in the midst of MCN fever.  Not a fad.  But a fever.  A fever justified by the onset of a new world order -- the rapid ascension of millennial mobile video consumption and engagement which, in turn, accelerates the need for (and fuels the development of) compelling premium short form video optimized for that platform.  That means a growing need for media companies successful playing in that world.  And that means the growing importance of MCNs, which explains 2014’s accelerating pace of MCN M&A.  The latest and greatest example, of course, is this past Monday’s Fullscreen/Otter Media mega-deal (here are my predictions of which MCNs may be next).

But, there’s much much more in 2014, particularly in this remarkable month of September.  This month marks THE moment in time at which previously sacred traditional cable/satellite programming bundles -- and the decades old business models behind them -- came under serious fire by concrete actions (rather than talk) amidst this accelerating mobile and OTT video reality (and the consumers -- especially millennials -- behind it).  Yes, there has long been such talk.  But, this month there has been real disruptive action.

AT&T -- no longer your father’s AT&T with all of its remarkable digital moves in 2014 (including its acquisition of MCN Fullscreen noted above via its $500 million Otter Media joint venture with The Chernin Group) -- is leading the charge.  Yes, THAT AT&T.  Earlier this week, AT&T announced its new $39/month U-Verse programming bundle that includes HBO and Amazon Prime video, together with basic cable programming PLUS broadband.  That’s right.  HBO!  Via this new stripped down efficient package, AT&T smartly targets cord cutters (“come on back”) -- and, importantly, the increasing number of “cord nevers” (those, especially young adults, who never entered the fold in the first place due to traditional bundle pricing).  Sure this news got some real press.  But, am not sure it is fully appreciated.  This new bundle is a very big deal.  And, make no mistake, others will rapidly follow suit.

Other cases in point.  Earlier this month, Viacom licensed 22 of its live and VOD premium networks to Sony for its new OTT service for PlayStation, Sony TVs and other Sony connected devices.  And, in rapid succession, Verizon announced an early 2015 launch for its long-anticipated “virtual” MSO that is so virtual, it is wireless -- specifically designed for mobile.  And, critically, core to its new service, Verizon announced a down-sized “bite-sized” cable-lite programming package that features mobile-friendly MCN AwesomenessTV short form video, in addition to big 4 broadcaster content and NFL games (via its existing exclusive smartphone deal).

When announcing its new service, Verizon Chairman and CEO Lowell McAdam proudly exclaimed the almost unthinkable -- that “among cable programmers, there’s been an attitude shift among cable programmers toward accepting a new over-the-top model for delivering pay TV.”  And, Verizon’s McAdam was not alone.  CEO Jeff Bewkes of Time Warner emphasized the company’s growing interest in offering HBO Go as a stand-alone OTT service -- absolute heresy ... until now (as I indicated previously).

2014. Transformative times in the annals of the media business.  A time of massive new opportunities for those brave enough to pursue them (and strong enough to withstand the pain of the current disruption).

Fullscreen Plays With Otter? Must Be True Because They Ditched My Panel!

Leading MCN Fullscreen, long rumored to be in M&A “play” following the Disney/Maker Studios mega-deal, now apparently really is -- this time with AT&T and Chernin Group’s joint venture Otter Media.  The Otter/Fullscreen deal, if it happens, is reported to value the company between $200-$300 million, which is significantly less than the rumored $750 million-ish price-tag a few months back when Relativity Media was reported to be close to paying Maker-like mega-bucks.  If the now-rumored $200-$300 million number holds, perhaps earlier reports were way off.  Or, perhaps, Fullscreen overplayed its hand the first time?  You see, the passage of time is not a friend in M&A for the company that hopes to be bought.  Passing time almost always benefits the buyer, not the buy-ee.  Or, another possibility -- which was voiced to me by a trusted source -- is that maybe, just maybe, Fullscreen really believes that today’s MCN valuations will be considered to be “lows” one to two years from now -- and perhaps this deal (if it happens) would give them the opportunity to let at least a significant amount of their equity ride (while taking some cash off the table).  You see, apparently, this will not be an outright sale; rather, Otter Media is reported to be taking a majority stake in Fullscreen.

In any event, the timing here is funny to me, in a very personal way.  Last week I moderated a high visibility panel at the Siemer Summit that focused on the premium digital video ecosystem.  And, originally, Fullscreen’s COO -- Ezra Cooperstein -- was scheduled to participate.  But, lo and behold -- a few days before, he mysteriously bowed out -- with no real reason given.  Hmm ... deja vu?  The very same thing happened to me a few months back when I moderated an MCN-focused panel at UCLA -- literally just a couple days prior to reports that Disney was in the midst of buying Maker Studios.  Guess who was scheduled to be on that panel -- but also mysteriously bowed out in the days before?  That’s right.  Kevin Mayer -- Head of Strategy for Disney.

Coincidence?  I think not!  I even quipped about this last week when I kicked off my Seimer Summit panel.  One of my first questions naturally focused on the long-rumored sale of Fullscreen -- and why no deal had yet been consummated after all these months.  And, in the process, I joked that some kind of sale must be imminent because Fullscreen was following Disney’s “missing panelist” M.O.  (either that, or my panel moderating skills leave much to be desired).

So, here’s a tip.  If an industry exec is scheduled to participate on a panel, give a speech, or do some other kind of public PR -- and if that person mysteriously bows out the days preceding that event as a result of some undefined last-minute conflict or other ambiguous explanation -- then that person and his/her company are about to be transformed either the good way (M&A, major new gig) or the bad way (termination).

You see, when that seat is empty, the behind-the-scenes PR shenanigans are full.

AT&T’s Bold Content-Driven Moves

AT&T is determined not to be “just a carrier” anymore -- and is making bold content-driven moves to underscore that point.

Obviously, its new $49 billion mega-deal with satellite provider -- and increasingly original-content driven company -- DirecTV is a deal that will have significant reverberations among many.  Verizon anyone?  Echostar?  DirecTV has a massive footprint/platform, of course, of its own to distribute compelling and differentiated content (NFL Sunday Ticket anyone?).  DirecTV also quietly has gotten into the HBO-like “original programming production” game -- featuring exclusive premium long-form video that can’t be found anywhere else.

That’s premium long-form video content.  But, let’s also not forget AT&T’s surprising $500 million premium short-form video development-driven venture with The Chernin Group, a deal announced just one month ago.  The deal includes integration of leading anime-focused MCN CrunchyRoll.  MCN “bite-sized” premium v

And, earlier this year, Dr. Dre’s Beats Music launched with AT&T in a massive distribution deal -- again, all about content -- and now Dre looks to become a billionaire via his acquisition by Apple (which likely will be announced at some point this week).

Bold bold moves.

And bold bold moves beget bold bold moves by others.

Exciting times in the world of “content meets technology."

AT&T Sings “I Want My DirecTV”? Dish Next to Verizon, Apple?

Fast on the heels of its $500 million content development venture with The Chernin Group and Comcast’s acquisition of Time Warner Cable, AT&T is rumored to be mulling over a $40 billion take-over of DirecTV.  If rumors become reality, this deal would signify yet another recent massive move in the world of premium multi-screen video.  AT&T immediately would (1) have a national footprint for its U-Verse content services (television, movies) -- leap-frogging from 6 million to 26 million subscribers, and (2) potentially control and own DirecTV’s coveted exclusive NFL “Sunday Ticket” package.  Remember, AT&T and DirecTV are already partners -- bundling AT&T broadband services in certain markets.

What else?  Rival DISH Networks would be immediately in play.

By whom?

One obvious potential buyer would be AT&T rival Verizon.  After all, there are no other real satellite options.

On the non-obvious side, how about Apple?  Apple has been quietly sitting on the sidelines throughout all of these premium multi-screen video and OTT machinations.  Too quiet.  Apple needs to be in the living room.  I previously wrote at length about this -- i.e., the strategic rationale and logic of such a move for Apple.

These truly are exciting times in the wild world of digital media ....

Talking AT&T and MCNs on NPR -- My Radio Interview

Yesterday, I was invited to talk AT&T and MCNs on NPR.  Here is the link to the relevant NPR post with that radio interview, which runs about 8 minutes -- but worth every single scintillating second!

MCNs -- And Then There Were None ... My Predictions

Reading like an Agatha Christie novel, MCNs continue to be picked off one-by-one.  The past month has been a whirlwind of YouTube economy MCN and OTT machinations – March Madness that continued into April and, as expected, shows no signs of abating.  

It all started with Warner Bros. $18 million investment in leading gamer-focused MCN Machinima.  Then continued with Disney’s mega-acquisition of more horizontally focused leading player Maker Studios for up to $950 million (a deal that Relativity Media later hoped to disrupt in this highly disruptive space).   Followed in quick succession by AwesomenessTV’s acquisition of smaller MCN/talent firm Big Frame.  And then with a smattering of sizable strategic MCN investments, including German TV giant ProSieben’s significant investment and stake in Collective Digital Studio and Lionsgate’s strategic partnership with RocketJump.  

And then, in a bold (and, to many, surprising) move, AT&T launches a new $500 million OTT/content-focused venture with The Chernin Group that integrates The Chernin Group’s recent controlling interest in leading anime-focused MCN Crunchyroll (check out this “must read” analysis of the deal by Gigaom’s Janko Roettgers).  Major OTT moves -- by Netflix, AmazonPrime, Yahoo!, AOL (the latter two which are hitting the accelerator to catch up in the space) -- also surface almost daily, underscoring how hot this content-focused premium online video space has become.  It is absolutely prime time.

Who’s next in this mystery in which remaining significant strategic MCNs are disappearing fast and partnering up with major studios and service providers?  Here’s my educated “take" based on conversations in and around the overall digital media ecosystem – including venture capitalists, media executives, bankers, media execs, and the MCN community itself.  At the risk of patting myself on the back (forgive me), I accurately predicted the “action” with Big Frame and Crunchyroll -- so, I’ll revisit these predictions in a few months.  I identified several of these before -- but believe this augmented/updated list is worth repeating in light of continuing developments.  And, one important over-arching theme -- virtually all of these MCNs are vertically (i.e., “niche” content/audience) focused.

FULLSCREEN -- I identify this one first, because a credible source tells me it may be in “play” right now (although, to be clear, that “play” may have been the just-announced AT&T/Chernin deal because The Chernin Group also is a significant investor in Fullscreen).  The company is a known “player” in the space -- somewhat of a cross between Maker Studios (broad-based content) and ZEFR (deep analytics and technology -- see below).  That makes it “different.”  And, different can be good in the right hands.

ZEFR -- while technically not an MCN (although there is no single “right” answer to the question, “what is an MCN?” anyhow), this LA-based company is built on top of YouTube and is hot, hot, hot.  Great technology, great mega-name brand clients.  This company won’t be independent in 12 months tops.

MACHINIMA -- despite the fact that this one just recently closed its major strategic round with Warner Bros., again, it’s only a matter of time here.  This one is obvious.  It is one of the most high profile MCNs, and it caters to the coveted young male demographic.  New CEO Chad Gutstein took the helm less than one month ago -- and most certainly will focus on strategic alternatives.  In the “right” hands, this could be magic.

MITU  -- this MCN has a sizable lead in the Latino market, a vertical that is significantly under-served in the overall YouTube/OTT economy.  No question that big players are mulling this one over in a Crunchyroll kind of way right now.  Specific non-English vertically-focused MCNs -- what Janko Roettgers calls “niche” programming -- make absolute business and consumer sense in our pluralistic society.  I am Hungarian.  If I were fluent, I’d want my full complement of Magyar programming right now!

STYLEHAUL -- this one is vertically-focused on fashion/beauty/lifestyle -- kind of the anti-Machinima demographic.  This company is hot as well, with over 4000 channels and a potentially massive international opportunity.  Lots of very positive buzz here.

DANCEON -- this vertically-focused MCN is the “MTV of dance” and fills an obvious void for that massively under-served market.  DanceOn is hot and growing fast -- very fast -- and is backed by A-list investors, including AMC Networks, Nigel Lythgoe (creator of “American Idol” and “So You Think You Can Dance”), Guy Oseary, and Madonna.  Madonna??!!!  And dance??!!  How can you go wrong?  You can’t!  DanceOn owns this very international category.  This one is also only a matter of time.

THE WHISTLE -- here’s an obvious vertically-focused MCN, which apparently wasn’t obvious to to many, since it just launched in January of this year (but already has millions of subs).  Its sports focus alone makes this one intriguing.  Think of it as the new ESPN for the current ESPN’s kids who want their own experience.  An impressive management team has closed strategic partnerships with virtually all major sports leagues -- a Herculean feat that many, including myself, would believe simply couldn’t be done.  Which makes it doubly Intriguing.

Let’s revisit these predictions on an ongoing basis.  We are still in this book’s early chapters -- and can’t skip to the last page yet.